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What is a Gifted Mortgage Deposit?

Adele MacGregor

Written by Reviewed by Graham Norwood

19th Feb 2020 (Last updated on 18th Aug 2021) 7 minute read

A gifted mortgage deposit is a financial gift which will cover part of or all of the deposit for a house. For many first-time buyers, saving for a deposit can be a struggle and a gifted house deposit may be the only way they can get onto the property ladder.

A gifted deposit is usually provided by a family member. Gifted deposits must be made clear to both the mortgage lender and your conveyancing solicitor from the offset. It is important to note that a gifted deposit must be treated as a gift and not a loan. Providing the deposit as a gift means that the giver must not have any intention of ever owning the property. They must also not expect any payment in return.

In this guide, Compare My Move has worked with both property and financial experts to review the logistics and legalities of a gifted mortgage deposit and what it means for your mortgage application.

This article will cover the following:
  1. Who Can Gift a Deposit?
  2. How Much Deposit Can Be Gifted?
  3. Can I Also Use My Own Savings?
  4. A Loan vs A Gifted Deposit
  5. Will a Gifted Deposit Affect What Mortgage I Can Get?
  6. What is a Gifted Deposit Letter?
  7. What Documents Are Required?
  8. Do You Pay Tax on a Gifted Deposit?
  9. Do Any Lenders Reject Gifted Deposits?
  10. Learn More About Mortgages and Deposits

Who Can Gift a Deposit?

Most commonly, a parent or parents will “gift” a deposit to a child to assist with the cost of buying a house. However, a gifted deposit can also come from a grandparent or siblings and in some cases, aunts and uncles.

Mortgage lenders are usually satisfied with direct family members providing a gifted deposit. Now more than ever, first-time buyers are needing the help from parents and family members to get a foot on the property ladder.

According to research from Legal & General, one in every two first-time buyers aged under 35 is receiving financial support from the “the Bank of Mum and Dad”, with 71% of these new homeowners saying that they would not have been likely to buy without financial help from family or friends.

Gifted deposits from parents, grandparents or siblings are usually permitted without questions, but some lenders may not approve a deposit from aunts and uncles or cousins. This is also the case for distant family members. In this case, it is worth checking with a mortgage advisor if the gift will be accepted.

Can a Friend Provide a Gifted Mortgage Deposit?

Mortgage lenders are far more cautious with gifted deposits from friends and as a result, this could slow down the mortgage application process. This is due to the risk of someone unrelated laying claim to the property in the future - and the increased risk of money laundering. If your gifted deposit is from a friend rather than a direct family member, be aware that your choice of mortgage lenders will be decreased. Many lenders will not accept a financial gift from a friend as a deposit and if a mortgage offer is made, it may not be the best available. You must make sure you know how much mortgage you can afford to borrow.

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How Much Deposit Can Be Gifted?

The amount of money gifted to the homebuyer can be as much or as little as the gifter wishes to give. The gifted deposit can make up the whole deposit required or it can cover it in part.

Mortgage lenders will require a deposit of at least 5% of the price of the property - often more, especially if the housing market is volatile at the time you are buying a property. The gifted deposit would need to meet this amount or more if it were the only source of funds for the deposit.

Can I Also Use My Own Savings?

Yes. The gifted funds can make up part of the deposit, with the remaining amount made up by your own savings. Depending on the combined amount, this could mean a higher percentage

The bigger the deposit, the better the mortgage deal offer will be. A higher deposit can also mean lower monthly mortgage repayments. You will also stand to pay back your mortgage quicker.

A Loan vs A Gifted Deposit

Be aware that there is a clear difference between a gifted deposit and a loan from a family member. When a deposit is gifted, there should be no expectation of repayment or any claim on the property. This must be laid out clearly in the gifted deposit letter.

Family members are able to loan an amount of money for the mortgage deposit, but this is treated differently to a gifted deposit. As the intention is for this to be paid back, this does not fall under the same regulations as a gifted deposit. The lender must trust that the borrower can and will repay the amount. Formal/written arrangements for repayment are recommended in this instance.

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Will a Gifted Deposit Affect What Mortgage I Can Get?

No. Although you will need to make your mortgage lender aware that you are using gifted monies for the deposit, using a gifted deposit will not affect the type of mortgage you are offered or eligible for. However, be aware that some lenders may not accept a gifted deposit.

What is a Gifted Deposit Letter?

Both your mortgage lender and conveyancing solicitor will require evidence that the gifted money is genuine and legal. A key part of this evidence is a signed Gifted Deposit Letter from the person(s) gifting the money. This letter acts as a declaration from the giver that they are supplying the funds without expectation of property ownerships, any kind of repayment or any claim on the property.

The letter must provide details of both the person gifting the money and the person receiving the gifted deposit. It will also need to be signed in front of a witness.

In order so that you are prepared when it comes to notifying your lender and solicitor that you are receiving a gifted deposit, we’ve included a list below of what a Gifted Deposit Letter should include:

  • The name of the person receiving the gift
  • The amount of money being gifted
  • Confirmation that the funds are a gift with no expectation of repayment
  • That the gift is motivated by love rather than commercial interest
  • That the gift does not give the person giving it any stake in the property
  • Confirmation that the gift has come from a legitimate source, such as savings.
  • The gifter’s relationship to the buyer
  • The address of the property being purchased

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What Documents Are Required?

Mortgage lenders and solicitors have a legal duty to ensure that your gifted deposit is both legal and credible. That is, it does not come from a suspicious source, disguised as being from a relative or friend.

In addition to the gifted deposit letter, the person giving the monetary gift will be required to supply both the lender and your conveyancer with personal documents to back the statements in the letter. These should include:

  • Photo ID (a passport or driver's license)
  • Proof of address (such as a bank statement or utility bill).
  • They may also be asked to provide bank statements so that your solicitor and mortgage lender can check how the funds have been accumulated.

Do You Pay Tax on a Gifted Deposit?

Although there is no tax on the gift itself when given, there are ways it can be taxed.

In the event the gift is transferred to your account and it gains interest in your bank or building society account before being used, then the gift would be taxed. This can be avoided by the giver keeping the amount in their own account until it is needed.

Another way the amount could be taxed is if the person(s) gifting the deposit dies within 7 years, you may be liable to pay inheritance tax (IHT) on the amount gifted. If this is a concern, it would be worth contacting a financial adviser or consider if you need to hire a mortgage broker.

Do Any Lenders Reject Gifted Deposits?

There are lenders which will not accept a monetary gift as a mortgage deposit. Check with your chosen lender before proceeding with the mortgage application if you are using a gifted deposit. Some lenders will accept them but may have various restrictions in place, so ensure you do your research on the various lenders on the market. A mortgage broker would also be able to assist you with this.

Learn More About Mortgages and Deposits

This is part of our mortgages and deposits guide. In our next article, we explore all the questions asked in mortgage interviews and how to prepare. To find our more read mortgage interview questions.

Disclaimer

All data, research, facts and figures have been taken from reputable sources and government data that was accurate at the time of writing. Mortgage criteria, interest rates and policies change regularly and vary depending on the lender and type of mortgage you have. You should speak directly to your mortgage lender for clarification. It should be noted that your home may be repossessed if you cannot keep up with your mortgage payments.
Adele MacGregor

Having written for PerformanceIN, WalesOnline, Grazia Magazine and The Olive Press, Adele now writes advice articles for home movers, first-time buyers and house sellers alike.

Graham Norwood

Reviewed by Graham Norwood

Property Journalist and Editor,

With over 15 years of experience in residential property journalism, Graham is currently the editor for both Estate Agent Today and Letting Agent Today.